Does my group qualify for the Small Business Tax Credit?
To encourage small businesses to offer healthcare coverage to their employees, healthcare reform includes a small business healthcare tax credit. Eligible, small, for-profit businesses or tax-exempt organizations could receive a tax credit beginning with the 2010 tax year if they:
- employ less than 25 full-time equivalent (FTE) employees (companies who employ less than 50 part-time employees may also be eligible);
- contribute at least 50 percent of the cost of single healthcare coverage; and
- pay less than $50,000 average annual salary.
Small Business Tax Credit Maximum
The maximum credit for tax years 2010-2013 is 35 percent of employers' premium contribution cost (25 percent for tax-exempt organizations). Premiums for dental and vision also apply unless they are covered by a separate policy. For tax years beginning in 2014:
- The maximum credit increases to 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers.
- To be eligible for the credit, you must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program Marketplace or qualify for an exception to this requirement.
- The credit is available to eligible employers for two consecutive taxable years.
Small Business Tax Credit Calculation
The credit gradually reduces as the number of FTEs and the average annual salary increases. For example; the maximum credit is available to businesses that employ 10 or fewer FTEs and pay less than $25,000 in average annual salary. The eligibility formula is based in part on the number of FTEs, not the actual number of full-time employees. Therefore, small businesses that employ more than 25 individuals may also qualify if some of their workers are part-time employees.
Alabama State Tax Credit
Alabama also offers a small group healthcare tax credit. The guidance for the federal healthcare tax credit indicates that small businesses receiving state credit may still qualify for the federal credit. Please consult your tax advisor for more information.
More Information About Small Business Tax Credit